The Dawn Patrol – 20.07.12 – RCUBE buys US HY. JPM’s Kasman summary. SocGen CHina presentation. MS buys EM over US. Earnings spree…


Stocks to open down as Asia lost its steam and investors wait for some more news on the Eurogroup meeting later today. We’ll watch German retail sales, eatnings in Europe.

Publicis1H Rev. Beats Est.; 1H rev. up 14.3% Y/y to EU3.08b vs Barclays est. EU3.03b; 1H organic growth of 2.8% vs Barclays est. of 2% growth; 1H Op. Margin up 14.0% to EU415m; 1H net income up 19% to EU275m; Diluted EPS +24.3% to EU1.28; it says that it will see much higher growth in 3Q, which “will confirm” forecast for FY
Vodafone 1Q Organic Sales Growth Misses ; 1Q Group Service Revenue Rises 0.6% vs. Est. 0.8% Gain; Confirms FY Guidance
CGG VERITAS Upgraded by Exane

ASML PT Raised to Eu48.50 VS Eu40 at JPMorgan, Stays Overweight
EADS Raisedto Conviction Buy List From Neutral at Goldman
Nokia Raised To Hold From Sell at SocGen (This is not a good idea, unless you keep it as an M&A target for MSFT).
Heineken offers $4.1b to buy the rest of Asia Pacific Breweries it doesn’t already own from Fraser & Neave


GOOG shares up 3.2% as the co reported Q2 Sales/EPS of $8.36bn/$10.12 vs estimates of $8.41bn/$10.04. Paid clicks rose 42% although advertiser payment per click dropped. Average cost per click down 16%YoY, up 1% QoQ.
MSFT shares up 2.5% after market as it published sales/EPS (adjusted!) of $18.6bn/73c vs $18.15/62c expected. Net loss was 6c a share or $492m.
AMD down 4.3% on its Q2 sales/EPS of $1.41bn/5c vs $1.41bn/7c expected. The company already warned that this Q would be worse than expected, but now, they also warn that Q3 would be bad too…
CMG (Chipotle Mexican Grill) down 12% on disappointing earnings.
SNDK SanDisk’s Shares Advance After Profit Beats Analysts’ Estimates

The rally Thurs had all the right internals except for the financials, which were notable laggards. Tech had another great session. The major headline indices crept higher although finished off their best levels and the S&P didn’t really close conclusively above the post-Summit 7/3 highs (~1375). From a bigger picture perspective, the conversation hasn’t changed a whole lot. The macr (in particular the European “macro”) has quieted lately. Quiet doesn’t mean resolution but just having stability goes a long way towards helping risk assets. As far as earnings are concerned, the numbers definitely are coming in better.

S&P is now nearly 9% off the early June lows and finished Thurs at multi-month highs but investors remain cautiously confused‖ instead of bullish. There remains a ton of skepticism and negativity when it comes to this tape and the rally (which few trust) is being chalked up to chasing, covering and QE3 speculation (all this derision points to the pain trad being higher for the time being BUT it feels like unless certain key groups start participating, like the BKX, the S&P will be hard pressed to sprint much past 1400).

Increasingly there is sense that 1400 might not be far out of reach although ironically despite all the overall cautiousness this 1400 call is becoming a bit too popular.



Sell 1 Dec 12 HYG 84 put to buy 2 Dec 12 HYG 93 calls.

Credit spreads to tighten according to the new updated RCUBE corporate credit model based on the Merton Model.
Equity indices have improved and credit availability is better but credit spreads are not showing this… Yet.
Given the large skew on HYG options, this trade looks like a great risk/reward implementation.

(this is the chart for the iTraxx, but it works the same on the US)


JPM (Kasman) Chief US economist
Bottoming, without much lift.

This is a presentation from JPM. The title says it all. Bruce expects a stabilisation in Q3 and some market relief, but don’t expect above trend growth. Also inflation expected to be tamed.

The global economy at a crucial juncture
• Growth has been sub-par for a year. 2Q12 was the weakest quarter of the expansion
• Three distinct sources of weakness:
– Euro area crisis intensified: recession deeper and longer, spreading via financial markets
– BRICS fall from the sky: Credit cycles turn, producing significant downward momentum
– After a strong start to the year US corporates turn more cautious
• The risk: Sources of weakness that are distinct begin to interact and feed financial tightening
Forecast: 3Q12 delivers a stabilization in growth and market sigh of relief
• Euro area balances crisis management with evolutionary path towards a union
• Global final demand stabilizes as manufacturing weakness persists, producing slower stockbuilding
• Consumption picks up modestly , helped by lower inflation
• Policy stimulus in Brazil and China kick in
• Through the noise US firms continue to expand at a modest pace
• Trackers: Global retail and auto sales; Global PMI inventories and services; US claims and labor income; China
and Brazil
It is hard to forecast a turn that delivers above-trend growth
• Zero rate bound constrains the needed monetary policy offset that has lifted growth out of soft patches
• The Euro area contains stress but does not have a central bank that will deliver growth
• US not expected to go over the fiscal cliff. However, uncertainty will weigh on 2H growth
• EM credit cycle turn represents downward trend shift
Global inflation unwinds all of last year’s pop
• Commodity price decline an important cushion for demand
• Core inflation moves down in response to sub-par growth

SocGen’s Presentation On The Chinese Economy – Business Insider

MS (Minack and Peters and co) Cross-Asset Strategy
The EM Inflection Point.

This team loves EM. Minack is the Australian strategist, self proclaimed global strategist. He is good though. Or at least he’s convincing. But he is a permabull on EM. This time he expects EM to outperform in H2 with all the easing that came YTD. On the other hand, the team is getting more cautious on the US equities as they expects big eanings miss in 2013… So the trade is to buy EM (Asian ex Japan) equities over US equities. EM equities are cheap relative to history and to the US, and who can doubt that the Chinese monetary policy won’t work?


GS: Fiat SpA (FIA.MI) Buy: All that matters is what’s ahead; Conviction Buy, new 12m PT €8.0
Stefan Burgstaller, Stephan Puetter, Ashik Kurian, Zia Yusuf
The combination with Chrysler has made Fiat our least Europe-exposed OEM. We believe it will likely own 100% of Chrysler within 18 months. Fiat is stemming Europe cash burn by managing for optionality, and we expect it to break even in Europe by 2014.

MS: Pernod-Ricard SA (RI FP, OW – €86.78, PT €89.00) (Mike J Gibbs)
FY12E preview; still our favoured play in spirits
We continue to prefer PR over Diageo in spirits given its much richer spirits gross margin (over 200bps higher) and better medium term growth potential. Asia is now a quarter of PR profit and is delivering low DD organic sales growth and high DD profit growth. It is the dominant European player in China and India. Its European platform is less exposed to the UK and “peripheral” consumer and its portfolio is more geared to economic recovery in the US. All this points to low DD organic EBIT growth for the Group compared to HSD for Diageo.

– Deutsche Bank is to integrate its Wealth Management Divisions, says FTD
– Credit Suisse completes separation of United Biscuits into 2 units, WSJ reports; Credit Suisse and RBS win bids for Maiden Lane III portfolio of assets, NY Fed says
– Atlantia Rated New Neutral At Citi, PT Eu10
– Deutsche Boerse PT Cut to Eu45 From Eu53 at Citi, Stays Neutral
– Lloyds ReinstatedUnderweightAt Barclays, PT 27p

– Airbus and Boeing narrow body ratio falls to 0.6x, lowest since 1Q of lat yr on fewer 737 orders, Bloomberg Industries says in note
– G4S says that it had significant costs during 2-yr Olympic Contract
– Peugeot’s heir is ‘worried’ by share price decline, says Le Figaro
– Renault-Nissan is to invest $160m to build Rogue in Korea
-Siemens could bid for Ansaldo Energia as it is finalizing its offer worth nearly EU1.3b, Bloomberg reports
– EADS Raisedto Conviction Buy List From Neutral at Goldman
– Meggitt PT Raised to 470p VS 430p at Goldman, Stays Neutral
Buy Rolls-Royce, Share Price Could Double by 2016, Goldman Says
– Safran PT Raised to Eu45 VS Eu36.5 at Goldman

– Akzo’s CEO says that he is not interested in buying Sachtleben, FTD Reports
– Roche is planning a final-stage trial of its secret drug that taps into a gene mutation to lower cholesterol and heart attack risk beyond what statins such as Pfizer’s Lipitor can do
– Sanofi and Regeneron Pharmaceuticals said they are enrolling patients in more than 10 late-stage clinical trials for potentially first-in-class cholesterol- lowering drug targeting an enzyme called PCSK9
– Repsol is to sell its LNG units in Canada, Peru, Trinidad, report Reuters
– Akzonobel Raised To Neutral From Underperform at Credit Suisse
Fitch Revises BP’s Outlook to Positive from Stable
– EDF Cut to Sell VS Neutral at UBS
– Fresenius Cut to Hold From Buy at Jefferies
– RWE Cut to Sell VS Neutral at UBS

– Publicis 1H Rev. Beats Est.; 1H rev. up 14.3% Y/y to EU3.08b vs Barclays est. EU3.03b; 1H organic growth of 2.8% vs Barclays est. of 2% growth; 1H Op. Margin up 14.0% to EU415m; 1H net income up 19% to EU275m; Diluted EPS +24.3% to EU1.28; it says that it will see much higher growth in 3Q, which “will confirm” forecast for FY
– Vodafone 1Q Organic Sales Growth Misses ; 1Q Group Service Revenue Rises 0.6% vs. Est. 0.8% Gain; Confirms FY Guidance
– Deutsche Post may face a double- digit million-euro writedown in 2012 after German mail-order company Neckermann filed for insolvency, Handelsblatt reported.
– ASML PT Raised to Eu48.50 VS Eu40 at JPMorgan, Stays Overweight
– Nokia Raised To Hold From Sell at SocGen

– Orkla 2Q revenue nk15.2b vs est. nk14.95b ; 2Q Net Income NK285M vs. est. NK727M; 2Q pretax profit nk541m vs est. nk950m ; Says timing of Easter sales, weak mkts for Sapa Profiles Europe, hit 2Q profit
– Heineken offers $4.1b to buy the rest of Asia Pacific Breweries it doesn’t already own from Fraser & Neave
– Prada Rises the most in 6 Weeks in Hong Kong trading; Shrs climbed as much as 6%, the biggest intraday increase since June 11
– De Master Blenders 1753 Rated New Neutral At Nomura, PT Eu8.15
– Metro PT Cut to Eu24 From Eu28 at Jefferies, Stays Hold

– Barco 1H Net Rises 28% to EU43.5m; 1H rev. EU531m; 1H Ebitda EU71.7m ; 1H free cash flow EU29.1m ; Order book EU501.5m, up 4.5% Y/y ; Sees Sales Growth in 2H
– Biomerieux 2Q Sales Up 12% Y/y to EU388m; 1H organic sales growth 2.9%.; Net debt EU94m at end-June; FY Target Affirmed
– Intrum Justitia 2Q Net Income SK141m; net rev. SK1.04b; Ebit SK218m; EPS SK1.77/shr
– Huhtamaeki 2Q Net, EPS Beat Ests.; 2Q net sales EU618.1m vs est. EU611.2m; Net income EU39.5m vs est. EU37.8m ; EPS EU0.39/shr vs est. EU0.364/shr ; Raises guidance; sees EPS increasing “significantly” compared with EU0.87 EPS ex-items in 2011
– PORTUCEL 1H sales rise 0.4% to EU742.7m;1H Net Income Rises 8.3% to EU105.7m; Ebitda falls 6.1% to EU187.1m; it says that it continues to operate at full capacity
– Sulzer 1H Ebit Misses; Sales Beat as New Orders Increase 11%; 1H sales SF1.92b; est. SF1.89b; 1H ebit SF193.4m, est. SF203.1m; New orders SF2.03b; Order backlog SF1.97b; Sees 2012 new orders, sales rising by high single-digit percentage
– Tieto 2QEarnings Miss Analyst Ests; 2Q net sales EU456.1m vs est. EU460.3m; Net loss EU6.8m vs est. EU3.4m loss; EBIT loss EU3.7m vs est. EU26.5m profit ; Keeps guidance; sees 2012 net sales developing in line with W. Europe IT services mkt of 0-2% growth; FY EBIT ex-items to be above than 2011
– Ubisoft 1Q Rev. Beats Forecast; 1Q sales are up 17.5% to €131m 1Q rev. rose 27% to EU131m; says sales for 2Q expected to be ~EU110m;
– London Stock Exchange Group has had series of preliminary, informal talks with Singapore Exchange about a merger, Telegraph says; LSE & SGX are not considering “full-blown merger,” FT reports
– Premafin, Finadin subscribe Fondiaria’sEU339.5m capital increase, after Unipol earlier today subscribed Premafin’s capital increase in same amount.
– Valeo plans to spend ~$74m to expand three plants in Poland
– BME Raised to Neutral From Sell at Citi
– The Restaurant Group Rated New Buy at UBS, PT 375p

To those who go on holidays : Enjoy!


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